A Long term perspective matters because time is the “exponential” function. This has, in turn, the largest impact on the final investing outcome. 

Yes, other things like initial corpus, periodic additions and rate of return matter. However, nothing can make up for time in the real world. Just observe the formula for compounding.

Amount = Principal * (1+ Return) ^ Time

Time matters most. Simple. Especially in Equity investing, the longer you have, the lesser the chance of losing money and the greater the chance of you achieving an inflation-beating return on your investment.

Just look at the data. Rs. 1,00,000 lump sum investment that compounds at a rate of 12% generates the following values:

 3 years5 years10 years15 years20 years25 years
Value at the end of the period1,40,4931,76,2343,10,5855,47,3579,64,62917,00,006

Long-Term Investing and Predictability of Returns

A long-term outlook helps investors since it reduces the volatility to returns, i.e. the range of outcomes is closer to the average, allowing for higher predictability of returns, thereby, better planning.

Holding Periods3 Years5 Years7 Years10 Years15 Years20 Years25 Years
Average Return14.5%14.3%14.9%15.0%14.7%14.4%13.5%
Standard Deviation14.0%10.5%6.3%4.1%2.2%1.8%0.6%
Duration: Aug 96 to Oct 22

Long-Term Investing and Better Outcome Ranges

Long Term Investing and Better Outcome Ranges:

Here, we can observe that by increasing the investment duration, the standard deviation reduces. This thereby increases the probability of generating a positive final outcome that also exceeds a satisfactory return.

Holding Periods3 Years5 Years7 Years10 Years15 Years20 Years25 Years
Upper Range28.5%24.9%21.2%19.1%16.9%16.2%14.2%
Lower Range0.5%3.8%8.7%11.0%12.4%12.6%12.9%

The graphical representation of the above table is mentioned below:

Chart, line chart

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